Prudent Intesting? The Credit Crisis of August 2007 Mainsail II Siv-Lite, and the State Cash Investment Pool

This paper reviews the period leading up to and including the credit disruption of August 2007 and then examines one failed structured finance issue and one investor in that issue. The investor was a financially conservative U.S. state treasury and the issue, Mainsail II, a little-known esoteric structure known as a SIV-Lite. The pairing of these two entities is part of the story of the financial crisis and tells us much about the excesses of the markets at that time and the lack of investment discipline. The paper explains the structure of a SIVLite as well as a collateralized debt obligation (CDO), a structured investment vehicle (SIV), and an asset-backed commercial paper conduit. It explores the role of the broker and rating agencies in the investment decision.